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October 2, 2013

Direxion’s Falkeis: We Want to Be the Leader in Liquid Alts

Direxion’s president says firm will continue its face-to-face approach to educating advisors on the role of liquid alternatives

In the runup to Morningstar’s annual ETF conference for advisors, we interviewed Eric Falkeis, president and COO of Direxion Funds, which manages $7.5 billion in more than 50 investing vehicles.

Falkeis spent 15 years at US Bancorp, including a stint as director of ETF operations before joining Direxion six months ago. In the interview, he said Direxion was expanding its product suite beyond the leveraged and inverse ETFs and mutual funds for which it is best known. “We want to be known for innovative products” that manage risk, he said, particularly in the liquid alternatives space.

Just yesterday, Direxion launched one of those new products, the Direxion Long/Short Global Currency Fund (DXAFX), an actively managed mutual fund that gives investors long/short exposure to 19 different currencies, based on a Morgan Stanley index, the Multi FX Enhanced V10 USD Index. “The index is passive,” Falkeis said, but since the fund is rules-based, it’s “very dynamic.”

In November, Falkeis said Direxion will launch a master limited partnership (MLP) ETF — the Direxion Zacks High Income MLP Shares, using the Zacks MLP Index. According to the ETF’s prospectus, the fund will normally invest at least 80% of its net assets in the securities that comprise the Zacks MLP Index or other investments “that are substantially identical to the economic characteristics of the securities that comprise the Index.”

In addition, the ETF may invest up to 20% of its assets in instruments that provide exposure “to the component securities of the index,” including futures contracts; options on securities, indexes and futures contracts; equity caps, collars and floors; swap agreements; forward contracts and reverse repurchase agreements.”

That ETF, Falkeis suggested, could benefit from the continuing movement of assets out of traditional fixed income vehicles.

That description alone suggests why Falkeis believes Direxion and its wholesalers, which the company calls “client facers,” must take on the role of being educational consultants with advisors as well as good salesmen.

“Alts can be anything,” he said, and since so many investors (and advisors) have been “burned” in the past by investing in alternatives, “one-on-one is what does it” in providing education to advisors and building trust around Direxion and its products that are meant to diversify and risk mitigate client portfolios. Direxion will even bring the fund product developers into conversations with advisors. “Our business is face-to-face and long term,” Falkeis says.

While Direxion doesn't claim to have invented the word, Falkeis said that this approach — having salespeople be product experts so they can educate advisors — has led to a new name for Direxion’s wholesalers. They need to be “Schmeeks,” Direxion says, meaning that they are both “schoomzers and geeks.”

All Direxion’s products in the liquid alternative space, he concluded, are meant to provide TLC: transparency, liquidity and (low) cost.